Playing Old Maid

When my youngest sister was four-years-old, we taught her how to play Old
Maid. She learned quickly but played the game like - a four-year-old. When
she was dealt the Old Maid, her little thumb would push it a couple of inches
above the others in her hand. She did this with a giggle since her maneuver
was tricking us (in her 4-year-old mind) into taking the Old Maid. She succeeded;
someone would remove it from her hand so that she could say: "Ha, Ha, you have
the Old Maid!"

Today, the Bureau of Labor Statistics (BLS) has a four-year-old mind. This
morning, June 3, 2011, it released its monthly Employment Situation Report.
The very first words were: "Non-farm employment changed little (+54,000) in
May..." Nowhere in the 38-page report does the BLS state that the addition
of 54,000 jobs was actually a loss of 152,000 jobs.

The BLS invented 206,000 jobs. The Bureau has constructed an equation called
the "Net Birth/Death Model." Its purpose is to count "Business births." That
is, new jobs in new businesses net the number of lost jobs in "Business
deaths": companies that went out of business.

This figure plays a large role in how Americans are told to think about the
economy. CNBC did not look beyond the first sentence this morning when it announced
The Number: +54,000. It did not mention the 206,000 net birth-death jobs. The
Wall Street talking heads who were then interviewed were also ignorant. Last
month, on May 6, 2011, the BLS April Employment Situation Report opened: "Non-farm
payroll employment rose by 244,000 in April..." The +175,000 net birth/death
jobs were not mentioned by Bubble TV and maybe not by any other major media
outlet.

There are those who say the net birth/death (NBD) figure is a sophisticated
calculation. No doubt it is; but is it accurate? If it is, why does the BLS
never mention that NBD jobs were added when it manufactured The Number? Why
does it so diligently hide it?

The initiative for the NBD calculation addressed a real problem. The BLS is
not equipped to include "business births" in its monthly Employment Situation
Report. It makes sense to adjust The Number, but the BLS, like most of Washington,
is detached from the economy.

In June 2011, it is ridiculous to conclude the U.S. economy is adding more
jobs than it is losing. Yesterday, on June 2, 2011, the National Federation
of Independent Business (NFIB), a trade group of smaller businesses, released
its latest survey results. (I have found the direction of the trend in
the monthly NFIB survey offers a good indication of the direction of the economy.)

Some of the highlights from the June 2, 2011, NFIB release:

"Chief economist for the National Federation of Independent Business (NFIB)
William C. Dunkelberg, issued the following statement on May job numbers,
based on NFIB's monthly economic survey:

"After solid job gains early in the year, progress has slowed to a trickle.
The two NFIB indicators-job openings and hiring plans-that predict the unemployment
rate both fell, suggesting that the rate itself will rise.

"Meaningful job creation on Main Street has collapsed.

"With one in four owners still reporting 'weak sales' as their No. 1 business
problem, there is little need to add employees, especially with the uncertainty
about future labor costs arising from new regulation and legislation."

The Bureau of Labor Statistics pushes the Old Maid above the other cards in
its hand each month. It takes five seconds to type "net birth death" into
the BLS website's search engine and read this month's NBD number. Yet, it is
not mentioned by the media or by Wall Street talking heads. The Bureau of Labor
Statistics has every reason to look at America and proclaim: "Ha, Ha, you have
the Old Maid!"

Sheehan serves as an advisor to investment firms and endowments. He is the
former Director of Asset Allocation Services at John Hancock Financial Services
where he set investment policy and asset allocation for institutional pension
plans. For more than a decade, Sheehan wrote the monthly "Market Outlook" and
quarterly "Market Review" for John Hancock clients.

Sheehan earned an MBA from Columbia Business School and a BS from the U.S.
Naval Academy. He is a Chartered Financial Analyst.